Japanese Inheritance Tax vs. US Estate Tax


NOTE: This information has been updated. The new post can be found at: http://willstrustsestates.blogspot.com/2014/08/japanese-inheritance-tax-vs-us-estate.html

I. Estate Taxes

A. America

1. Citizens and Permanent Residents

a. Tax on Worldwide property (credit for taxes paid to foreign countries)
b. Exemption of $2,000,000 in 2006; $3,500,000 in 2009; unlimited in 2010; and back to $1,000,000 in 2011)
c. Tax between 18%-46%
d. Unlimited Marital Deduction for Surviving Spouse if a citizen

2. Non-Citizens/Non-Permanent Residents

a. Tax only on Property in the United States (Cash in foreign banks and foreign stocks are not taxed)
b. Exemption of $13,000
c. Tax of between 18%-49% on rest
d. Unlimited Marital deduction if Surviving Spouse a citizen

B. Japan (Actually an Inheritance tax, not an estate tax)

1. Japanese Citizens and Permanent Residents

a. Exemption of ¥50,000,000 + (¥10,000,000 for each statutory heir); Possible additional exemption for insurance money, retirement savings, and money left to handicapped individuals
b. Tax between (10%-50%)
c. For property outside of Japan, a beneficiary that acquires property will be subject to Japanese inheritance tax if the beneficiary is a Japanese national and the beneficiary was domiciled in Japan at any time during the five years preceding the receipt of the inheritance.
d. A surviving spouse is entitled to a tax deduction. This is a complex formula based upon who is living at the time of the Decedent’s death and where the money goes. Generally, a surviving spouse can deduct about 1/2 to 2/3 of the tax.

2. Non-Citizens/Non-Permanent Residents

a. If beneficiary is not Japanese and not living in Japan and property is not in Japan, appears Country where property located will tax such property.
b. If there is a tax, it appears a surviving spouse is entitled to the same marital tax deduction as for Japanese citizens.

II. Gift Taxes

A. America (18%-46%)

1. Citizens and Permanent Residents

a. Tax on all gift transfers of Worldwide property
b. Annual exemption of $12,000 per person/per donee (unlimited gifts for donees if different donors)
c. An annual gift to a non-citizen, permanent resident spouse, of $120,000 is available.
d. Lifetime exemption of $1,000,000
e. Gifts may be split with spouse

2. Non-Citizens/Non-Permanent Residents

a. Tax on all gift transfers of US Property (including Cash and Stocks in US companies)
b. Annual exemption of $12,000 per person/per donee (unlimited gifts for donees if different donors)
c. No Lifetime exemption
d. Gifts may be split with spouse

B. Japan (10%-50%)

1. Citizens and Permanent Residents

a. Annual exemption of ¥1,100,000 for each beneficiary (beneficiary taxed after this)
b. One time spouse exemption of ¥20,000,000
c. For property outside of Japan, a donee that acquires property will be subject to Japanese gift tax if the donee is a Japanese national and the donee was domiciled in Japan at any time during the five years preceding the receipt of the gift.

2. Non-Citizens/Non-Permanent Residents

a. Annual exemption of ¥1,100,000 for each beneficiary(unclear – enforcement is almost impossible)

III. Generation Skipping Taxes (Taxes on gifts or bequests to grandchildren)

A. America

1. Approximately $2,000,000 in 2006 is exempt; $3,500,000 in 2009 is exempt; there is no GST tax in 2010; $1,000,000 exemption in 2011 (but indexed for inflation)
2. Tax of 55% on rest

B. Japan 1. None

For more information on Japanese taxes, the Japanese government has a nice website in English with some helpful facts. This is a link directly to the inheritance tax information: http://www.mof.go.jp/english/tax/taxes2006e_d.pdf

(Revised on 2/2/09 to correct Japanese tax rates)

46 thoughts on “Japanese Inheritance Tax vs. US Estate Tax

  1. We are Canadian citizens, who came to the US and worked (visa) for 10 years. Got our Green cards 2 years ago. Now retired in Mississippi. All assets are in wife’s personal property trust. I understand we have a 2 million dollar (each person), estate tax deduction as we are permanent residents. Should my wife die, what will the tax implications be? You mention in your blog that marital deductions don’t count if one is not a citzen of the US. What do you meanby that and waht are the ramifications?

  2. A citizen is entitled an unlimited marital deduction. If Husband dies and leaves his wife more than $2,000,000 – the first $2,000,000 is sheltered by the DECEDENT’S applicable exemption amount. If Wife is a citizen, anything over the $2,000,000 is sheltered by an unlimited marital deduction. If Wife is not a citizen, she is not entitled to this additional unlimited marital deduction. (Note, the Husband’s citizenship in this example is irrelevant to whether wife is entitled to receive the unlimited marital deduction.)

    So, to answer your question, if one of you has over $2,000,000 – the surviving spouse may have to set up what is known as a QDOT trust or pay estate tax on the amount over $2,000,000.

  3. I am a Japanese citizen, currently living in Japan at the moment. I was adopted and raised by an American father and a Japanese mother. My father passed away, and I am an only child. If my mom passes away in Japan, who does the inheritance go to? Would it all go to me or would it all be divided between me and her brothers and sisters?
    I also would like to know if my mother and I decided to move back to the States, how would the inheritance be like? All to me or will it be divided, even though her brothers and sisters live in Japan?

  4. Dear Worried in Japan,

    You will need to check on two things. First, you must see if your mother legally adopted you in Japan. The easiest way to do this is to check the family tree with the local community authority. I believe the family tree is called a “koseki” – (戸籍). If you are listed as your mother’s daughter, there is little to worry about.

    Second, check to see if your mother has a Will, also known in Japan as “Ishi”. More importantly, if she has one, check whether you are named as a beneficiary. (I think the Kanji for Will is 意志。)

    If you are on the Koseki and named in the Will, you are golden. If you are in neither, you are in trouble. If you are in one but not the other, be nice to your mother and have a conversation with her about her plans.

  5. Thank you. I am in the koseki, but she doesn’t have a Japanese Will. She only has an American Will. Does a Japanese Will need to be notarized? Where do I need to go to get one made?

  6. Dear Worried,

    I am confident that your mother should be able to find a qualified person to prepare a Will in Japan if she lives there. If she lives here, I have not heard of too many issues of a valid American will not being accepted for probate in Japan. If she lives here, you may not even need to worry about any of this unless there are assets in Japan.

  7. Mineko’s American husband predeceased in 1990 and she died in 2008 holding both US and Japanese citizenship. She paid taxes in both countries and owned a US condominium held as trustee of her revocable living trust valued at $900,000. She also owned a personal residence in Japan valued at $2,000,000. Her beneficiary is her only son who is a citizen and resident of Japan. Can Mineko claim a US estate tax exemption of $2,000,000 and exclude her Japan house so she will have no US estate tax? Would the son in Japan have to pay about $1,000,000 as an inheritance tax on the house?

  8. Dear Aloha,

    This is a very fact sensitive question. Typically, the country that has the right to tax Mineko’s estate is the country where Mineko was domiciled at the time of her death. So, if she was domiciled in Hawaii, then the US would tax the estate. An informational tax return should be filed in Japan, but Japan would provide a complete credit to minimize the double taxation.

    A big exception to the domicile rule is real property (i.e. the condo). Real property is only taxed by the country where the property is located, regardless of where the person was domiciled. Again, the other country should give a credit for the tax owed.

    Considering the amount involved here, I strongly urge you to seek professional help as to minimize what is likely a huge estate/inheritance tax.

    The United States and Japan have tax treaties specific to these issues.

    Also, don’t forget about state estate and inheritance tax issues.

  9. For those of you who have parents living in Japan, an important piece of the puzzle is not only where the money is when your parents die, but also the citizenship of the beneficiaries. If the beneficiary who receives the money is a Japanese citizen, Japan still has the right to tax the money for inheritance tax purposes, regardless of where the beneficiary lives.

    Also, as a side note, I understand Japan is being a little more aggressive in trying to go after large inheritances now… so you will want to seek professional tax advise to do anything like this properly.

  10. I am a 21 year old dual citizen (japanese and american) currently residing in the U.S. My mother (a japanese citizen)passed away a few years ago and I am in Japan right now inheriting her assets (property, stocks, money) (my father has relinquished his inheritance rights to me). I have decided to inherit her assets as an american citizen because it is easier that way (my japanese citizenship is terminated when i turn 22), and I dont think there will be a difference in inheritance tax. Is this true? I think that the amount im inheriting will be below the cut off for paying inheritance tax in Japan, but I think I will need to pay state inheritance tax in the U.S. Is this true? Also, after I have inherited this money in Japan, how do I move it to the U.S.? Will I have to pay huge amounts of money for international bank transfers?

  11. Dear Kevin,

    I am a Japanese citizen currently living in the U.S. I have not lived in Japan for more than 20 years now, and it is unlikely that I will not go live there in the future. My father who lives in Japan wants to sort out all inheritance-related issues while he is still in a good shape. He is wondering if he can liquidate his properties in Japan, opens an off-shore bank account in the Caribbean under his name, transfer the money to the account after having paid the sales tax in Japan, and leave the money there until he passes away. In such a scenario, what would happen to me if I were to inherit the bank account afterwards? Thank you.

  12. Dear Naomi,

    If all of your mother’s assets were in Japan, neither the US nor any State in the US has a right to tax that money.

    In your situation, I don’t think it makes a difference if you are inheriting the money as a U.S. citizen or as a Japanese citizen. As a side matter – I don’t think you can choose after the fact. On the date your mother died, you were a Japanese citizen.

    When bringing money into the US, you need to arrange that through your bank. I don’t know the cost of the transfers – but there will certainly be exchange fees. There should be no tax, but it will send up red flags and the government may ask where you got the money from – so keep good records. This is common and happens whenever someone brings in large sums into a country.

    In summary, without knowing more information, it sounds like only Japan has the right to tax your inheritance.

  13. I’m an American citizen, but my wife is a nonresident alien (Japanese). We live in Japan. If I die, how much of my U.S. assets (from brokerage accounts) can pass to her tax free? I realize the unlimited marital deduction won’t apply. But isn’t there a “unified credit” that will allow her to inherit $600,000 to $1-2 million (seems to change all the time) without tax liability?
    Thanks very much!

  14. Dear KS,

    Since you and your wife live in Japan, under the tax treaty between the US and Japan, Japan’s inheritance tax will apply, not America’s estate tax. (The only caveat to this is real property held in America. Brokerage assets are taxed based upon your domicile.)

    Generally, upon the death of the first spouse in Japan, the surviving spouse is entitled to receive a statutory share of the decedent’s estate. Usually this amount can pass to the survivor free of Japanese inheritance taxes. Like the US, the main taxes kick in on the death of the surviving spouse.

    You should see an estate planning attorney in Japan for specific guidance.

  15. Hi Kevin,

    My father who is a US citizen passed away in Japan. My mom is Japanese citizen in Japan (although she changed from US citizenship about 5 years ago). My father has joint bank accounts with me and my mom in the US (as well as an IRA). What are the tax implications for my mom?


  16. Reply to March 8, 2009 post:

    Your father’s tax situation will be governed by the treaty between the United States and Japan. Since you say that he died in Japan, I will also assume that he was a resident of Japan. If that is the case, then Japan will have primary taxing authority over most of his estate/inheritance. If he owned any real property in the United States, that will be subject to US tax.

    Depending on the amount in question, tax returns may need to be filed in Japan and America and possibly even the state where any real property is located. However, the US will offer a credit for taxes paid to Japan.

    Unless the amount in question is less than $600,000, I recommend that you seek the help of someone in Japan that can help you through this process and file the correct returns.

  17. Dear Kevin,

    I am in a similar situation but my question is with regard to Korea. My parents, both US citizens (previously Korean citizens), recently passed away. My father left me an inheritance in Korea (financial assets only, no real property). Will I, as a US citizen, be subject to Korean inheritance taxes or will I be subject to US estate taxes only? My father and I also technically have Korean citizenship (residual on paper only, due to old laws) but since dual citizenship is not valid in Korea, it would be our Korean citizenship that is not valid.

    Any help would be much appreciated. Thank you very much.

  18. Regarding Korea,

    There is no estate tax treaty between the US and Korea – only an income tax treaty. Korea does have an inheritance tax, but I am honestly not familiar with it enough to know the answer to this question. If there is not a lot of money involved, there is not likely going to be a tax though. If there is a sizeable amount, there may unfortunately be a double tax. In such a scenario, you wide be wise to seek counsel in Korea. Best of luck.


  19. Dear Kevin,

    I'm a US citizen living in the US. My deceased father (a US citizen) had property in Japan (and lived there for more than 10 years) but did not write a will. So, now me, my brother, sister, and mom (they live in Japan) are left with the inheritance. What percent will Japan tax for the inheritance (house is less than 100K)? And can I assume that I won't be taxed by the US government when I transfer my portion to the US? And how should I transfer the money (less than $40,000) to my account in the US without being penalized? Is it best to transfer it in small amounts? And lastly, will I have to provide documentation for the transfer of money if I were to use it as a down payment for property in CA? Thanks in advance.

  20. My mother lives in Japan and is a Japanese resident. I live in the U.S., I am a Japanese citizen and a U.S. Resident. What happens to her assets (very large brokerage account) held within the U.S.? Does the estate pay tax under U.S. estate tax laws because the assets are held here, or does Japan collect taxes on this money as an inheritance tax to me? Or, what if she passed the assets to my husband who is only a U.S. Citizen?

  21. Dear Anonymous,

    If the bequest is from a Japanese citizen or resident to a non-citizen, and the assets are not located in Japan, then it does not appear that Japan has the right to tax such inheritance.

    According to the Japanese Ministry of Finance, the tax applies to:
    "3. A person who acquires properties by inheritance and meet all the requirements
    stated below
    a. having a domicile outside of Japan
    b. having Japanese nationality
    c. having acquired properties or otherwise from the person who had a domicile
    in Japan within five years before the inheritance or gift"

    See the following link for a more complete definition as to who Japan considers a taxpayer to be: http://www.mof.go.jp/english/tax/taxes2006e_d.pdf

  22. I have been an American citizen for almost 30 years, but still have my Japanese citizenship. My mother who resides in Japan has a US green card. Most of her assets are in Japan, but she is buying real estate in the US worth about $500K which she will leave for me at her death. She has written a will and left all her other assets in Japan to me. I am thinking of formally relinquishing my Japanese citizenship. Is this a good idea and how will I be taxed and by whom if I give up my Japanese citizenship?

  23. Dear Anonymous,

    I thought I heard Japan was going to institute a look back period (like the United States does for citizens who renounce), but I do not see anything about this.

    In America, if you renounce your citizenship, your estate can still potentially be taxed for up to 10 years.

    If you give up your Japanese citizenship, you will eventually only be subject to US taxes. You will also qualify for an unlimited estate tax deduction when your spouse passes.

    Obviously there are many other reasons to have Japanese or American citizenship besides taxes, so you must consider that as well.

    Good luck.

  24. Dear Kevin,

    I also have been an American Citizen for over 30 years and still retain my Japanese Citizenship. Both my mother and father are Japanese Citizens.

    My father unexpectedly passed away in Japan in 2008 leaving a CD bank account in the U.S. solely under his name. It was his intention to transfer this asset (approx. 30K) over to me but he passed before he was formally able to set this up with the bank under my name. He did not leave a will and the bank has frozen this asset until I can get legal help to handle anything pertaining to this account.
    My mother is alive and a resident in Japan. She is in agreement this asset in the U.S. should be moved over to me. I reside in California.

    How should I seek legal counsel on this matter? What criteria should I use to search for a lawyer who can help me with this situation?

    Any advice would be deeply appreciated. Thank you.

  25. Dear Anonymous,

    I'm sorry to hear about the loss of your father.

    When seeking legal counsel in estate matters, I always strongly recommend that you find someone who specializes in such matters (as opposed to a general practitioner).

    It may be hard to find someone who is familiar with the Japanese tax laws, so your best bet is to find an attorney with a masters in taxation, also known as a Tax LL.M., who will be smart enough to review the estate and inheritance tax treaty between Japan and the United States.

    I also recommend hiring someone who uses a paralegal as this helps keep the estate administration costs down. There will be a lot of time spent on the phone and doing paperwork for these types of matters, so for that you want to pay the lower rate.

    Since your father died intestate (i.e. without a Will), the matter must first be dealt with in Japan before you can do anything in America. Do not expect to receive this money, as it will mostly pass to your mother, depending upon your father's other assets.

    Best of luck.

  26. I am Canadian, married to Japanese and living in Japan for the past 26 years. I have 2 older brothers in Canada. My parents also live in Canada and are getting to that age – I understand that when they die the inheritance will be subject to Japanese inheritance tax laws. In Canada, there is no inheritance tax.
    Is there any way in which I can escape from being subjected to Japanese inheritance taxes?

  27. Dear Vinni,

    There are always ways to minimize, if not totally eliminate, taxes with proper planning.

    Also, although Canada does not have an estate or inheritance tax, there is a capital gains tax. In other words – unless assets pass to a surviving spouse or common law partner, all the assets are treated as if sold by the decedent on the date of death and there can still be a substantial tax due. This is known as a "deemed disposition" on death.

    As far as the interplay between Canada and Japan – that is a bit out of the realm of work that I do. I do know that there is a tax treaty between the two countries.

    Accordingly, if assets are significant enough, you will probably be best served by working with one of the large accounting firms.

    Good luck.

  28. My widowed father (a Japanese citizen) who passed away this spring left me and my sister a property in Japan. I am a US citizen and a NY resident. My sister, who lives in Japan expressed her desire to buy out my share in cash, most likely to be paid in installments. She said that she hopes to sell the property within 3 years to qualify for tax exemptions there. While she has not yet made a formal offer, I would like to learn about tax consequences in the US in the mean time.

    If I retain my share and sell the property jointly with my sister within 3 years, we may each conceivably net anywhere between $750k – a little over $1 million. If the amount is over $1 million, I believe there is a NY state tax- is this true? Will the portion that only exceeds $1 million be taxed or the whole amount? What happens if we do not sell the property for several years–do I still have to pay inheritance tax this year? How do I prove what the fair market value was on the day my father died? Is the fmv used in calculating capital gains tax if we sell the house later? If I opt to a cash buyout by my sister, will I be giving up any deductions I might qualify for? My sister wants to deduct some expenses she paid for which she wants me to share in from my share when she offers me a cash buyout. For US tax purposes, will the gross amount of my share of the inheritance be used or the net amount (after my sister deducts hospital, nursing home and accountants' fees) be used?
    Thank you in advance.

  29. Dear Anonymous,

    Your questions are really too specific and too detailed to handle in this public forum.

    I can say that you may be confusing the NY Mansion Tax with the NY Millionaire's tax. The Millionaire's tax is designed to tax income of more than $1,000,000. The sale of a property rarely results in this much income because you are taxed on the gain – not the sales price. Additionally, you would be sharing that with your sister.

    The NY Mansion tax only applies to properties sold in New York State, and the tax is generally paid by the person buying the property.

    If you wish to contact me and hire me for specific advice, please call: 609-818-1555. Thank you.

  30. I am a US citizen and my wife is a Japanese citizen with a green card. If I were to pass away, would she would be taxed on all of the assets we held together and the life insurance proceeds? If so, will a QDOT allow her to inherit tax free?

    Thank you.

  31. Dear Anonymous,

    Great question regarding life insurance. If a United States Citizen passes, and leaves money and/or life insurance proceeds to a non-citizen spouse, it may be subject to a federal estate tax.

    A QDOT does not technically avoid the estate tax as much as it defers the payment of the tax. The far more tax efficient way to handle life insurance is by setting up a life insurance trust and making the trust the owner and beneficiary of all life insurance policies.

    For more information, please consult a local estate planning attorney.

  32. I am a US citizen and my wife a legal resident (green card). Her father would like to come to visit us in the US and purchase a house. Would it be best to purchase the house in his name to avoid a Japanese gift tax? Would it be best if he transferred it to me (US citizen) instead of my Japanese wife to avoid Japanese inheritence tax?

  33. To the US Citizen with Green Card spouse:

    If your Japanese father-in-law is looking to buy real estate in America, it may be best to do a far more complex transaction.

    If he buys the house in your name, that will trigger a US Gift tax. If he buys the house your wife's name, that will trigger the US and Japanese Gift taxes – with the US getting first dibs at the tax and then having to look at the treaty to deal with the rest.

    If he owns the house and then passes, that will trigger the US Estate Tax.

    A more complex transaction might involve him buying the house now and gifting it to you and your wife (and maybe children) over time using the annual exclusion amount. Please call me at 609-818-1555 if you would like a consultation regarding this.

  34. Thanks Kevin…one last point. It sounds like there is NO Japanese gift tax to US citizens if the gift is given outside Japan. Japanese tax bureau may consider a gift to be in Japan if money is wired from Japan to US, since the money was technically in Japan at the time of wiring (gifting) but still unclear on this. However, if father-in-law purchases home in his name, then gifts it to a US citizen while in the states, there would be no Japanese gift tax I think. At least in US we have a gift tax exemption of $1,000,000while Japan has none. Or father-in-law can open bank account in USA, wire money from his Japanese bank to his USA bank. Then from USA bank wire it to US citizen and incur no Japanese gift tax maybe (since the gifting was done outside japan to non-japanese resident). Your comments/suggestions are appreicated.

  35. To the US Citizen with Green Card spouse:

    Please be aware the law is much more complex and by paraphrasing you are giving an incorrect answer.

    When you say, "It sounds like there is NO Japanese gift tax to US citizens if the gift is given outside Japan," that is not correct because it depends upon whether the US citizen is also a Japanese citizen or a former Japanese citizen that recently gave up their Japanese citizenship. Also, if the US citizen is a resident of Japan, the transfer could also be subject to a tax.

    Also, please be aware that the federal $1,000,000 gift tax exemption DOES NOT apply to non-residents of the US. For more information on this, consider reading all my articles related to the comparison of the Japanese and the US taxes: http://willstrustsestates.blogspot.com/search/label/Japan

    Since large taxes are at stake, I strongly recommend that you hire someone in your jurisdiction on a consultancy basis to make sure things are set up properly.

    Good luck.

  36. Hi, Kevin. I am an American citizen and my mother (now deceased) was a Japanese citizen. My Japanese grandfather recently passed away and left a cash inheritance for me ("return money" to be paid through my grandmother who inherited property). How should I expect to be taxed on this, either in the US or Japan?

  37. Dear Anonymous,

    I'm sorry to hear about your grandfather. Unfortunately, you really do not give enough information for me to even make a guess. I suggest you consult with your grandmother or an attorney in Japan if there is a significant sum involved.

  38. I am a US Citizen, my husband is a Japanese Citizen with legal residency. We are attempting to purchase a home with some assistance from my mother-in-law; She would like to gift us somewhere in the range of $50,000 to $150,000 but we've been stymied by the excessive taxes on gifts. In your opinion, what is the best way to avoid these taxes? My parents (mother and father) are willing to help with being possible gift recipients. Thank you!

  39. Dear MomofTwo+one,

    A large gift can be structured in a variety of ways so that it is technically not a gift all in year one. By making a small gift over a number of years, the gift will qualify for the annual exclusion and not be subject to tax.

    Please call if you wish for specific advice on how to do this.

  40. Dear Kevin,

    I am a US citizen and married to a japanese citizen. We have lived in Thailand for the last 15 years. If I pass away while we reside in Thailand,is the US – Japan treaty on inheritance applied?

    Also what is the current amount that is not subject to inheritence tax?



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